Can cost justify age discrimination in the UK?

The established view that cost considerations by themselves cannot justify age discrimination in the UK has been questioned in the recent decision of the Employment Appeal Tribunal (“EAT”) in Woodcock -v- North Cumbria Primary Care Trusts. The EAT in this case upheld the Tribunal’s decision that a redundancy dismissal timed so as to avoid ‘enhanced’ early retirement rights being triggered due to the appellant’s age, although unfair, did not amount to age discrimination. This was on the basis that it was objectively justified, on grounds other than cost alone. The EAT did not therefore go as far as to depart completely from the established view that cost alone cannot form the basis of an employer’s justification for age discrimination. However, its reasoning did suggest that, in some circumstances, there is no reason why this should not be sufficient to be the basis of justification.

What happened in this case?

The appellant, Mr Woodcock, was employed as CEO of Cumbria Primary Care Trust (“PCT”). In 2005, Mr Woodcock’s employers sought to start the redundancy process. However, they failed to find a date on which they could meet Mr Woodcock until less than 12 months before Mr Woodcock turned 50. Realising that this would mean employment would not end until after Mr Woodcock turned 50, his employers wrote to him giving him notice that his employment would terminate on a date prior to his 50th birthday, despite having not yet consulted with him.

The primary (although not the sole) aim of the PCT in doing so was to avoid the significant cost liability to them and the public purse of the enhanced pension Mr Woodcock would receive if his employment ended after he turned 50 (the monetary difference being approximately £500,000).

The EAT agreed with the Tribunal’s findings that giving Mr Woodcock notice prior to the planned consultation meeting did discriminate against him on the grounds of his age. Direct age discrimination can be justified if the employer can show that its action, although of a discriminatory nature, is a proportionate way of achieving a legitimate aim. The EAT held that the PCT had in fact identified more than simply cost as their legitimate aim. Mr Woodcock was clearly redundant and no alternative job had been found for him: it was this need to dismiss a redundant employee that made the employer’s aim legitimate rather than cost alone. The EAT reasoned that in these circumstances the chance of taking early retirement in the final weeks of his notice period would be a “windfall” for Mr Woodcock.

The EAT therefore held that the Tribunal had correctly applied the “cost plus” approach to justification, as seen in Cross -v- British Airways, (another EAT decision), i.e. that cost alone cannot justify a measure or state of affairs with discriminatory impact but that “costs plus some other factor” may do so.

The EAT emphasised that it was not departing from such an approach, and so in that respect the law has not changed. However, the EAT was not complimentary towards this “costs plus” approach, noting that it “tends to involve parties and Tribunals in artificial game playing”. The EAT recognised the arbitrary and artificial nature of having to “find” other factors apart from cost, and the difficulty in having to establish where “cost” ends and “other factors” begin. The EAT therefore suggested (albeit on an obiter, i.e. non-binding basis) that an employer should be entitled to justify potential discrimination on the grounds that avoiding or rectifying such discrimination would be disproportionately high. In other words, the EAT was not convinced that Cross establishes that cost alone will never be sufficient to justify discrimination.

What does this case mean for employers?

This case confirms to employers that cost can be a key part of a defence of justification for age discrimination, but it must be remembered that the EAT was careful not to depart from the established “cost plus” approach.

This decision may therefore be of some comfort to employers seeking to objectively justify age discrimination where cost is a key issue, i.e. where the cost of avoiding or rectifying the discriminatory impact would be disproportionately high. In such situations, employers may have more scope to argue the proportionality of measures in the normal way, even where cost is the main or even sole issue. In light of the EAT’s comments in this case, courts and Tribunals may be more open to such arguments. However, as the law stands, it remains the case that employers must seek to rely on costs plus other factors when seeking to objectively justify age discrimination. It is predicted and hoped that this judgment will lead to further discussion and guidance on this issue.

The issue is likely to become even more relevant once the proposals for abolishing the default retirement age come into force in October 2011, as expected. Following this change, employers may be more likely to have employees in their workforce who are over 65. This will have a serious impact on the provision of benefits such as group medical insurance, critical life cover or income protection schemes. The cost of such schemes in respect of employees over 65 will no doubt be higher than for younger employees, and so employers will have to think carefully as to whether they pay the increased premiums or instead limit the provision of such benefits to those under 65. If they choose the latter, it is likely that the only justification for such a prima facie discriminatory practice will be cost, and so employers will wait and see just how the case law develops in this area, in light of the EAT’s views in Woodcock.